Time to get ready for “No Deal” Brexit

14 Nov 2017, Garvan Walshe

Brexit broke the British political system and left nobody with a strong enough incentive to defend the former system. It is a revolution, so expect there to be no deal.

At best, after a transition period, Britain will become what is known as an ordinary “third country” without any preferential trade access to the EU, and with Northern Ireland inside the customs union.

At worst, we will have a chaotic Brexit, which will pose problems for just in time production chains, and in particular the supply of fresh fruit and vegetables, call into question the transfer of funds through the Single European Payments Area, and, as the Chancellor himself has warned, paralyse air traffic. Britain would, for a week or two before the most severe chaos was tamed (Ministers have openly mused about using the Army to operate customs), appear less like a third country and more like a third world one.

To these risks should be added that of a Labour election victory, and the prospect of a far-left government which, once it exhausts its ability to raise taxes, and draws down what will be its very limited credit in the financial markets, will have no alternative but to resort to printing money. They even have a name for this policy - People’s Quantitative Easing - which might actually have had merit in immediate post-crisis conditions, but which would be extremely dangerous in the aftermath of Brexit.

Do not expect the “Norway Option” to save the UK. Although it would keep the damage of Brexit to a minimum

(and is the outcome I personally favour: a narrow referendum result suggests Britain wanted to be slightly further out than it already was) it is unstable. Leavers consider it a “fake Brexit” while Remainers can’t see why Britain should adopt EU rules without having a say over them. A strong and imaginative Prime Minister could unify the country behind the compromise, but that is precisely what Britain doesn’t have.

The Conservative party is divided on everything except its certain knowledge that replacing Theresa May will plunge it into a civil war. There is one crucial difference between the two sides. Pro-Brexit Tories are convinced they would win it. Moderates fear they would not. Labour has the fortune of opposition, able to cause trouble for the government, then blame them for incompetence, without taking a position sufficiently concrete to alienate either its pro- or anti-Brexit supporters.

Meanwhile the negotiations go on. The consensus among British EU watchers is that the EU27 will judge that “sufficient progress” has been made on Ireland, EU citizens’ rights and money to be able to begin discussions about trade. It is difficult to say with certainty whether they are right, but since June 2016, they have been more optimistic about progress in these negotiations than has been justified by the facts.

Britain’s problem is that it doesn’t have a government capable of agreeing what it wants. Damian Green, in effect deputy Prime Minister, believes Brexit will make the country worse off and would vote Remain if there was another referendum. The Chancellor and Home Secretary agree with him. But the bulk of the Party, and its loudest supporters in the press, still believe Brexit to be an enormous opportunity to be seized. If the Daily Mail, now famous for its latest witch hunt against anti-Brexit academics, can be dismissed as a British Fox News, the Sunday Times cannot. Yet in its recent editorial on the EU it said of Continental Europeans: With few exceptions theyhave little to be proud of in the bloodyhistory of the last century.

It is hard to see how a political system in which this is a mild version of what stirs the hearts of the ruling party can conclude a reasonable agreement with partners it has come to despise. Britain needs a leader that can appeal over the heads of such fanatics to what was once thought to be the common sense of the British people.

There does not seem be such a person.

In their absence, we should expect the negotiations to end, at best, with major disruption, as the UK moves from having the closest economic relationship with the EU to one of the most distant.

The imperative for business is to cut their exposure to this risk, while positioning themsleves to take advantage of the significant reduction in real costs the political shake up will produce.

The UK will still have an educated population that speaks the world’s lingua franca, geographical proximity to the

European continent, cultural affinity with the United States. It may even, to the Daily Mail’s disappointed continue for some time to have excellent institutions of higher education.

When the storm passes, it could be the most exciting emerging market in years.

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Words by: Garvan Walshe. Dr. Walshe is a former National and International Security Policy Adviser to the UK Conservative Party, and CEO of Brexit Analytics.